The Credit Managers Index (CMI) has consistently predicted the performance of the greater economy by roughly a month. In 2008, when the majority of the economic indicators pointed toward more growth, the CMI was starting to track downward and essentially predicted the impending recession. If this trend holds true, the news from this month is going to make many people happy about the coming trends in the economy.
At the top of the list of numbers to get excited about is the CMI reading itself. It is now sitting at 55.8 and that ends four straight months of decline. The 55.8 reading takes the index back to levels seen back in March when the CMI was at 56.2. The second number to get enthused over is the index of unfavorable factors. Last month that set of categories slipped beneath the 50 line that separates expansion from contraction. Now at 53.1, it is as high as it has been in well over a year. The prior high was 52, which was also back in March. Finally there is the index of favorable factors, which recovered nicely as well. The current reading is back to 60 and is consistent with the numbers seen through most of the spring.
If one looks at the details, there is more to fuel a cautiously upbeat attitude. The reading for sales returned to the 60s—sitting right at 60—after falling below this mark to 58.5 last month. Sales had been one of the more consistently positive numbers for the past year, staying above 60 all year with the exception of a dip to 58.3 in November 2011. There was a slight weakening in new credit applications, but stability in dollar collections and amount of credit extended. The factor that moved the needle on the index of favorable factors was sales—the almost four-point jump was impressive.
The most significant change took place in the unfavorable factors. Last month, only two of the six factors were above the expansion mark, and this month all of them are. The biggest improvements were in accounts placed for collection (48.9 to 52.4), disputes (47.6 to 51.9) and filings for bankruptcies (54.9 to 59.6). Filing for bankruptcies is as positive as this category has tracked in well over a year. Business closures have radically tapered off over the last several months and that is generally a good sign.
"It is far too early to declare that there has been a dramatic turnaround in the economy," said NACM Economist Chris Kuehl, PhD, "but these better numbers are reinforcing some of the other data points emerging." He affirmed that the housing market is showing consistent signs of life, boosting the prospects for construction employment, and noted the solid numbers in durable goods orders cautioning that a significant part of that gain seemed to come from the aerospace industry. Finally, the rate of new claims for unemployment has slowed, but did not have much effect on the rate of unemployment itself.
"The best that can be said about the current CMI number is that a declining pattern was thoroughly broken, and there is some reason to believe that this could be start of a much more positive trend than has been seen through most of the summer," Kuehl said.
Read the complete CMI report for August 2012.